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Sterling rises strongly over EU-UK Brexit transition deal

Published: Tuesday 20 March 2018

By Halo Financial Team

The “decisive step” on draft terms during the implementation period for an “orderly withdrawal” of the UK from the European Union was announced on Monday 19th March by EU Chief Negotiator, Michel Barnier and British Brexit minister, David Davis.

A step in the right direction…

There are still major issues still to be worked out for the transition period until 31th December 2020, including the operation of the Northern Ireland border. However, the agreement includes measures for an emergency "backstop" to avoid a hard border that could mean Northern Ireland remaining in parts of the single market and customs union.

David Johnson, Founding Director of Halo Financial, says the markets took the move as good news and were not expecting it to be announced until the European Union summit on Thursday.

"The Pound rallied across the board in a show of strength following the announcement of the agreement and Sterling could rise further this week if the Bank of England signals an early rise in interest rates."

Business as usual?

“The important thing now is that there is likely to be little change in trading between the UK and the EU up until its exit next year and the two sides can now focus on negotiating new trade deals for the future.”

The agreement includes rights for 4.5 million EU citizens in the UK and 1.2 million Britons in European countries after Brexit and offers EU citizens arriving in the UK during the transition the same rights as those who came before Brexit.

Rights for British and EU citizens

The agreement says, “British citizens and European citizens of the 27 who arrive during the transition period will receive the same rights and guarantees as those who arrived before the day of Brexit.”

It also outlines that the EU will have to consult the UK about annual fishing quotas during the transition.
Sterling rises, pound on uk flag
European Court of Justice role still to be confirmed

However, the role of the European Court of Justice in the UK is still to be decided, along with whether the UK can negotiate future trade deals with non-EU countries during the transition period. The future of Gibraltar is another on-going debate.

Mr Barnier says the agreement is a decisive step, but more work is to come. “What we are presenting to you today with David is a joint legal text which I think is a decisive step, since we have agreed this morning, and after these long days of work, on a large part of this which will constitute the international agreement for the orderly withdrawal of the United Kingdom.

“A decisive step remains a step. We are not at the end of the road. We still have a lot of work to do on important topics, particularly Ireland and Northern Ireland.

“It is this decisive step that I will present Friday, at the invitation of President Donald Tusk, and alongside Jean-Claude Juncker, at the European Council.

“Before that, I will meet tomorrow with the Ministers of the 27 Member States on whose behalf I am negotiating on the occasion of the General Affairs Council. And tomorrow I will also meet the Brexit steering group of the European Parliament. On Wednesday, at the invitation of Jean-Claude Juncker, I will make an update to the European Commission.

“But it is the European Council Friday that will evaluate and judge the state of the negotiations.”

Welcome news

David Davis welcomed the agreement. “Make no mistake, both the United Kingdom and the European Union are committed to the joint report in its entirety and in keeping with that commitment we agree on the need to include legal text detailing the back stop solution for the border of Northern Ireland and Ireland in the withdrawal agreement that is acceptable to both sides.

“But it remains our intention to achieve a partnership that is so close as to not require specific measures in relation to Northern Ireland and therefore we will engage in detail on all the scenarios set out in the joint report.”

Both sides hope the terms can be ratified by the UK government and EU leaders at Thursday’s summit.

UK Prime Minister Theresa May says, “"Prior to December, people questioned whether we would get agreement then. We did. People questioned whether we would get agreement now. We have.

"I think what this shows is that with good will on both sides, working hard, we can get an arrangement for the future which will be in the interests of the UK and in the interests of the European Union and it will be good for all parts of the UK."

Mr Davis hopes negotiations on the UK's future relationship with the EU - including a free trade agreement – will start "as soon as is possible for "the biggest, most comprehensive, most effective trade deal ever".

"We must seize the moment and carry on the momentum of the last few weeks," he said.
Keir Starmer, Labour's shadow Brexit secretary, welcomed the transition deal as "a step in the right direction".

"It is welcome that they have finally struck a deal on transition and now the government must prioritise negotiating a final agreement that protects jobs, the economy and guarantees there will be no hard border in Northern Ireland.”

But Scotland's First Minister, Nicola Sturgeon, is unhappy with the fishing agreement, calling it “a massive sell-out of the Scottish fishing industry".
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